Profit taking day for stocks

Markets have gone into a pause mode. Dow dropped 25, decliners over advancers 2-1 & NAZ was down a big 23 related to Microsoft (MSFT) earnings reported last night. MSFT was off 2½ on its earnings decline from lower PC sales. Profit taking is also taking banks lower. However the index is still in the upper reaches of its 3 month trading range.

S&P 500 FINANCIALS INDEX

Value 165.78

Change -2.24

% Change -1.3%

MLPs remain hot. The Alerian MLP Index shot ahead another 1½ to the 244s, a new 2009 high. So far, MLPs have gotten thru the earnings season with no damage from earnings reports. The Dow Jones REIT Index dropped 2, muddling along in its sideways trading pattern. Junk bonds were mixed & Treasuries rose, the yield on the 10 year Treasury bond dropped 4 basis points to 3.67%. Oil was down pennies on this quiet day of trading.

Alerian MLP Index --- 2 weeks




Dow Jones REIT Index --- 2 weeks




California is still standing because they passed legislation late last night (at least most of what was necessary) to close the huge budget deficit. Now we'll have to see how this mess plays in the real world.

•California Senate Approves $26 Billion Deficit Plan; Assembly Still Voting


CIT is under extreme pressure as it struggles to stay alive. Their tender offer for the $1B in notes due next month has been revised, creating an incentive for bondholders to redeem their bonds sooner (by the end of July). If they don't get 90% acceptance, CIT may have to file for Chapter 11.

•CIT Reworks Its Tender Bid for Notes to Punish Late Exchange by Investors


The chart below is as pretty a one as they come. Investors have been eager to accept risk to pursue future profits. On the margin, their appetite for high yield securities seems unlimited. MLPs & junk bond funds are having their best year in history while REITs (a similar kind of security) have been lumbering along during the big rally in recent months. The lagging REITs are related to all those "for rent" signs I see, not to mention div cuts this year.

Dow Jones Industrials --- 2 weeks

Microsoft profits plunge in Q4

Microsoft (MSFT), a Dow stock, reported profits in the last qtr (its Q4) plunged 29% because of weak computer sales. Revenue for MSFT fell for the first time since going public in 1986 & was well short of analysts' expectations. Its shares plummeted $1.87 (7%) in after-hours trading after rising 76¢ during daytime trading.

In the last qtr MSFT earnings sank to $3B, or 34¢ per share, down from $4.3B, or 46¢ per share last year. Earnings were hurt by legal charges, severance charges & the declining value of its investments. Excluding all those items, MSFT would haven beaten expectations by 2¢ per share. Quarterly sales dropped 17% to $13.1B (analysts were looking for $14.4B in sales). For the fiscal year ended June 30, MSFT's profit fell 17% to $14.6B ($1.62 per share) from $17.7B ($1.87 per share) in the prior year. Sales in their fiscal year sank 3% to $58.4B.

Dow should begin trading on Fri with a negative tone.

•Microsoft Profit Drops 29% as PC Slowdown Weighs on Revenue; Shares Slump


Microsoft --- 1 year

Dow surges past 9000

Markets shot out of the gate with strong gains in the first 2 hours & remained at those levels for the rest of the day. Dow closed up 188 at 9069, advancers over decliners almost 5-1 & NAZ gained 47. The only losers in the Dow were McDonald's (MCD) & Wal-Mart (WMT), 2 defensive stocks. Volume was not exceptional, on the floor it was a little over 1.4B.

Banks are at the highest level they've been at in the last 3 months (aside from reaching 175 on May 8).

S&P 500 FINANCIALS INDEX

Value 168.02

Change 4.84

% Change 3.0%

Value for S5FINL:IND





Below is a 2 year view of the Alerian MLP Index. 2 years ago, they had just come off their record high at 342. This year they've had a huge rally, already making 2009 the best year in a 14 year history. REITs are a similar high yield type, but have had a less successful recovery in recent months. Treasuries are in a different world, but largely the mirror of high yields. The yield on the 10 year Treasury is near where it was before the Lehman collapse. With a record $115B in 4 auctions coming next week, the yield may rise even beyond the 4% high of a couple of weeks ago. Risk is welcome, the VIX, volatility or fear index, has returned to pre-Lehman collapse levels.

Today, the MLP Index popped another 1.84 to 242.95 (pulling back in the last hour), the REIT index was up 5 to the high reaches of its 3 month sideways band & junk bond funds are back to Oct levels. VIX was flat at 23½. Treasuries sold off badly. The yield on the 10 year Treasury bond soared 16 basis points to 3.71% (up from under 3.30% earlier this month).

Alerian MLP Index --- 2 years




Dow Jones REIT Index --- 2 years




10-Year Treasury Yield Index - 2 years




VIX ---- 2 years




Commodities were not left behind. Oil has returned to its level at the start of Jul & may challenge its 73 high from last month.

CLU09.NYM

..Crude Oil Sep 09

..67.22 3

.. 1.82 ......(2.8%)

California lawmakers plan to vote today on the revised plan for a $26B budget reduction. The free spending state has proposed major cutbacks. Later on we'll find out if they have the backbone to make these cuts. This is the kind of news which stock markets like to hear.

California Lawmakers Set to Begin Deliberations on Deficit Plan


Dow has charged ahead an amazing 921 (11%) in just 9 trading days, one of its greatest rallies in history. This has been based on earnings that were better than "just plain awful." It looks like a California disaster has been avoided, although dealing with large cutbacks in their spending will be painful to many both in & out of state. We were reminded today that unemployment keeps muddling along at dreary levels. Caution is being thrown to the wind, accepting risk for future rewards is the driving force. Don't know how long that will last.

Dow Jones Industrials --- 2 years

Dow soars, flying over 9000

Stocks rose sharply, taking the Dow over 9000 (chart is shown in the Bigcharts widget on the right). Dow gained 166, advancers over decliners 4-1 & NAZ was 37 higher (up an astounding 24% YTD). Banks are participating in the rally.


S&P 500 FINANCIALS INDEX

Value 166.19

Change 3.01

% Change 1.8%

MLPs keep flying. The Alerian MLP Index gained 2.66 to the 243s, the highest level since Sep 12. REITs & junk bonds funds were higher. Like MLPs, some junk bond funds are back to levels not seen since before the Lehman collapse. The VIX is flat in the 23s. Treasury bonds sold off, the yield on the 10 year Treasury rose 7 basis points to 3.62%

Alerian MLP Index --- 2 weeks





Commodities are also in a rally mode with oil leading the way up.

CLU09.NYM

..Crude Oil Sep 09

...66.24

... 0.84 .......(1.3%)

Claims for unemployment insurance rose 30K to 554K, above estimates of 550K. This increase follows 2 weeks of sharp drops largely because automakers didn't lay off as many workers as expected in early Jul. The four-week average of claims, which smooths out fluctuations, dropped to 566K, lowest level since Jan. The downward trend in jobless claims is viewed as encouraging

.US Initial Jobless Claims Rise by 30,000 to 554,000


UPS (UPS), the world's largest shipping carrier, said Q2 profit plunged 49% to $445M as sales fell 16.7% from the stagnant global economic activity that affected all of business units. The outlook for Q3 was below expectations. They said that while the economy may be bottoming out the larger question is how long it stays at low levels before growing! The stock was off 50¢. EPS was 44¢ a share (adjusted earnings were 49¢) versus 85¢ last year. Revenue dropped to $10.8B from $13B last year. Analysts expected earnings of 49¢ a share on revenue of $11B. UPS expects Q3 earnings in a range of 45¢ -55¢, below 59¢ analysts' forecast. Their general outlook is very cautious. UPS is seen as a bellwether of the global economy, since it deals with such basic indicators of company health as orders & product shipments.

UPS Forecasts Profit Less Than Estimates; Sales Fall


3M (MMM) & McDonald's (MCD), 2 Dow stocks which are also Dividend Aristocrats, reported different earnings, MMM was up 3 but MCD fell 2¼. AT&T (T), another Dow stock, reported good earnings, stock up ¾.

• 3M profit surges past estimates, stock climbs- Reuters
• McDonald's 2Q profit falls 8 pct on strong dollar- AP
• AT&T's 2Q profit falls on economy, iPhone subsidies- AP

CIT (CIT) is back in the shaky camp. The rescue plan worked out earlier this week may not be enough to keep them out of bankruptcy. The stock is down 13¢ to 73¢.

•CIT Chapter 11 Filing May Follow August Debt Swap Under Bondholder Plan


Dow is up 900 points (more than 10%) in less than 2 weeks. This much euphoria without fundamental reasons can not last.

Dow Jones Industrials --- 2 weeks

Dow's 7 day winning streak ends

Markets were stumbling along looking for direction all day, but found none. Dow slipped 34 (ending its streak of daily gains), advancers 25% ahead of decliners & NAZ was up 10. Half the Dow stocks were higher. Banks also stayed near break even all day, but they remain at the high end of the sideways trading band for the last 3 months.


S&P 500 FINANCIALS INDEX

Value 163.18

Change -0.24

% Change -0.1%

Value for S5FINL:IND




MLPs remain hot as more investors are attracted by high yields to embrace riskier investments. The Alerian MLP Index rose .79 to the 241s, another 2009 high. The index yield has dropped to 8½% after its run up, narrowing the spread over the 10 year Treasury yield to 500 basis points, still high but less tempting than in the recent past. The Dow Jones REIT Index was up pennies & junk bonds were mixed. The VIX at 23½ reached another 2009 low. Meanwhile, the 10 year Treasury yield rose 8 basis points to 3.55%.

Alerian MLP Index --- 2 weeks




Oil inched up in the the PM, cutting its losses.

CLU09.NYM

..Crude Oil Sep 09

..65.40

.. 0.21 ......(0.3%)

Non performing loans, loans that aren't paying interest, is a growing problem for banks. Wells Fargo (WFC), Sun Trust (STI), Key Corp (KEY) & US Bancorp (USB) have had to increase their provisions for future loan losses & that problem looks like it will get worse in the coming months.

Wells Fargo, SunTrust Lead US Banks in Boosting Loan Reserves


General Motors sold 1.9M vehicles worldwide in Q2, despite a 32% decline in North America. Auto sales in China were up 62% in Q2. The company sold more than 450K vehicles in China just a little short of the 538K depressed sales in the US. GM said the Asia-Pacific growth led to 72% of its global sales for the qtr coming from outside the North American market, far higher than the normal percentage of 65%. Over time overseas sales are expected to drop back to the 60-65% range. The bright spot in GM's global sales, was that they were up 20% over Q1, a sign that the company is recovering from its 40-day stay in bankruptcy protection & from the global economic downturn. GM says its global market share was 12%, down only slightly from the year-ago qtr despite the bankruptcy filing. GM sold 3.6M vehicles in H1, down 22% from the prior year. Early indications are that the new GM will be able to survive.

• GM 2Q global sales fall 15 percent amid weak economy- AP

This 2 week chart shows a spectacular run, one of the best in history. This market is overbought, perhaps the bulls need time to catch their breaths.

Dow Jones Industrials --- 2 weeks

Markets uncertain where to go

Stocks are meandering after an explosive rise in recent days. Dow is up 16, decliners 20% ahead of advancers & NAZ is up 6. Markets may be getting ready to give back some of the recent gains. The Financial Index is down but near the higher end of its 3 month trading range.

S&P 500 FINANCIALS INDEX

Value 162.23

Change -1.17

% Change -0.7%

MLPs are flat, resting at their yearly highs. The graph below is for an ETF started by JPMorgan earlier this year to track the Alerian MLP Index (for those who want to participate in a basket of of MLPs). Today it's unchanged. The Dow Jones REIT Index dropped 1, just sloshing around in the 120s. Junk bond funds are little changed at or near their yearly highs. The VIX, volatility index, is flat in the high 23s, yet another low for 2009. The decline in VIX mirrors the growing acceptance of greater risk seeking out high yield securities. The 10 year Treasury bond slipped a little, taking the yield up 3 basis points to 3.51%


AMJ (ETF) --- 6 months




Oil sold off (but higher in the last few minutes) ahead of the weekly inventory report coming out shortly. Those who bought a couple of weeks ago in the high 50s are still happy campers.

CLU09.NYM

...Crude Oil Sep 09

...65.22

... 0.39 .......(0.6%)

Boeing (BA) & Pfizer (PFE), 2 Dow stocks, reported muddy kind of earnings. After making adjustments they were sort of OK. BA fell 19¢ while PGE is up 64¢.

• Boeing profit climbs in 2Q on strong defense sales- AP
• Drugmaker Pfizer's earnings fall 19 percent- AP

CIT (CIT) drama plays on. They paid high fees to get access to more money 2 days ago which is raising eyebrows. The bondholders who put up $2B bailout money got a fee of $100M for their effort. In addition, CIT had to put up a lot of collateral. The bonds that CIT wants to buy back at 82½¢ on the dollar is trading at that price presently. CIT's future remains uncertain, a negative for the markets.

•CIT Rescue Gives Pimco, Centerbridge Instant, Risk-Free $100 Million Gain


There is a story about how investors are accepting greater risk to go after greater rewards. The focus is on the global economy, with more interest in securities of growing Asian countries. This general feeling is what is in play in the US with more interest in high yield securities. The problem is that interest is fickle, it ebbs & flows.

•Investors Are Embracing More Risk With Preference for Asia, Survey Shows


The word stabilize or stabilization is thrown around a lot to signify that the recession is bottoming. Most would agree that the economy has ended its free fall period, but that does not necessarily signal the economy will come roaring back. Those talking about "good" earnings reports usually refer to earnings beating lowered estimates, but below last year. Wells Fargo (WFC) & Morgan Stanley (MS) reported mushy earnings today, sending the stocks lower. I think these reports are more representative of the real story about how well companies performed in Q2.

Dow Jones Industrials --- YTD

Dow higher for 7 consecutive days

Dow advanced to another 2009 high on the gains of 18. Dow rose 67, going over 8.9K, advancers were slightly ahead of decliners & NAZ was up 6. The 1+ gainers in the Dow were: Caterpillar (CAT), Merck (MRK) & Exxon Mobil (XOM) while Coca Cola (KO) & United Tech (UTX) were the big losers. Volume was on the light side.

Banks, while off today, are still in the higher end of their trading range for the last 3 months. Below are charts for 3 major banks over the last 3 months.

S&P 500 FINANCIALS INDEX

Value 163.42

Change -1.31

% Change -0.8%

Value for S5FINL:IND




Bank of America --- 3 months




JPMorgan --- 3 months




Citigroup --- 3 months





Profit taking finally hit the MLPs, down 1 to 240. They benefit from the pursuit of risk for high yields. Meanwhile REITs can't break out of trench war, going nowhere. Junk bonds are finding new friends, as the Barclay High Yield Bond ETF reached another 2009 high, with a yield falling to 13½%. The VIX, volatility index, went just below 24, another 2009 low. Treasuries found buyers, the 10 year Treasury bond rose more than 1 point ($10.55 per $1000 bond) reducing the yield 11 basis points to 3.48%. This yield is at the low end of the trading range for last 2 months.

Alerian MLP Index --- YTD




Dow Jones REIT Index --- YTD




10-Year Treasury Index -- 2 months




Oil has been working its way higher for the last 6 trading days.

CLQ09.NYM

..Crude Oil Aug 09

..64.72

.. 0.74 ......(1.2%)

California worked out a tentative deal to close the whopping $26B gap in its budget. California would slash spending for schools, public works & welfare programs in the longest recession since the 1930s. The agreement will also siphon money from municipalities, force companies & individuals to pay income taxes sooner, making it more difficult to receive state aid. They expect to vote on the new budget by Thurs. However, cities & counties said they would sue to block any attempt to siphon local gas & redevelopment agencies’ monies. Consider this proposal a "work in progress."

California Budget Deal Reached By Legislators, Schwarzenegger


Investors pursue risk, pushing stocks higher & higher. Thoughts of the recession ending followed by a "V" shape recovery are bringing out buyers. Stocks are in overbought territory, a day of reckoning is approaching.

Dow Jones Industrials --- YTF

Dow tries for 7 consecutive up days

Dow gained 53, advancers over decliners by 25% but NAZ fell 3. Banks were soft, digesting their recent run-up in prices.

S&P 500 FINANCIALS INDEX

Value 163.85

Change -0.88

% Change -0.5%

MLPs continue on their roll. The Alerian MLP Index is up .80 to the 242s (only 100 below the peak 2 years ago in Jul). REITs & junk bond funds were down slightly & the 10 year Treasury bond yield slipped 2 basis points to 3.54%.


Alerian MLP Index --- 1 month




Oil continues on its winning ways.

CLQ09.NYM

...Crude Oil Aug 09

...64.70

... 0.72 .......(1.1%)

Martin Feldstein, professor of economics at Harvard & former head of the National Bureau of Economic Research, says that the stimulus package may give a short term boost to the economy but will fade, bringing a 2nd leg down for the recession.

Obama’s Stimulus Plan Slow to Trickle Through Economy


The CIT (CIT) drama plays on. After the excitement yesterday about saving CIT from bankruptcy, they are saying that didn't solve their financial problems. They need more than the $3B arranged for yesterday. Their first hurdle is paying off $1B of debt on Aug 17. They are proposing giving the bondholders 82½¢ on the dollar & they need 90% approval.

•CIT Group Says Existing Liquidity Not Enough to Make August Debt Payment


5 Dow stocks reported earnings with mixed results. Caterpillar (CAT) was the best performer, raising EPS guidance for 2009 from 1.25 to a range of 1.15 to 2.25 (a very wide range!). The 1.68 div is under review.

Symbol	Last Trade		Change		Volume	Intraday	Related Info
MRK		29.29	1.35	4.83%	5,438,926		Chart, Messages, Key Stats, More
UTX		54.17	0.80	1.46%	2,159,364		Chart, Messages, Key Stats, More
DD		28.15	0.18	0.64%	2,842,150		Chart, Messages, Key Stats, More
CAT		40.82	4.17	11.38%	20,913,315		Chart, Messages, Key Stats, More
KO		50.46	0.57	1.12%	3,622,390		Chart, Messages, Key Stats, More

• Drugmaker Merck posts 12 percent drop in 2Q profit- AP
• United Tech profit down 23 percent, cuts '09 forecast- Reuters
• DuPont earnings sink, but cost cuts help- Reuters
• Caterpillar 2Q profit falls 66 pct on weak demand- AP
• Coca-Cola 2nd-quarter profit rises 43 percent- AP

Caterpillar --- 2 weeks




Dow is trying to extend its winning streak to 7 days. It's up, but only 15 are gainers in what is clearly an overbought market. Ben Bernanke is testifying before Congress, telling them that there are tentative signs of stabilization & rates will remain low for some time. A key problem is that low rates can not last, they will have to be brought back to traditional levels.


DOW JONES INDUS. AVG SNAPSHOT

1 YEAR



Dow Jones Industrials --- 2 months